Environmental Pricing Initiatives

Harry KitchenDepartment of Economics

Trent UniversityPeterborough, Ontario

Current ToolsUser fees:• designed to raise revenues rather than to

ration services efficiently.• fail to include environmental/social costsLocal taxes and infrastructure charges:• seldom designed with efficiency objectives • do not include environmental/social costs

User Fees – For What Services?

• Water and sewage treatment• Solid waste collection & disposal• Public transit & transportation• Public recreation

Current Practice - Water

Price structure #of cities % of pop Flat rate 489 23.4

Volumetric 427 76.6Constant 304 45.4Decreasing block 84 7.9Increasing block 39 23.3

** Trends are described in SP’s report

Current Practice - Sewer

• Almost always recovered through surcharges on water bill

• Mainly flat rates even when water is based on volumetric prices

• Sometimes, as a % of water bill

Current Problems with Water/Sewer Pricing

• Many municipalities not metered • Grants often cause problems• Rates do not reflect time of day, season of

year, distance from source• Asset replacement costs often ignored• Opportunity cost not included

Water/Sewer Pricing:What Should Be Done?

• Meters are requiredPrices should include:• asset replacement & opportunity

costs• cost differences due to time of day,

season of year, distance from source

Solid Waste: Fees or Local Taxes?

• Fee per bag/container is most efficient.• Studies show fees lead to less trash,

more recycling & composting. • Fee should cover all operating and

opportunity costs (cost of space, for example) of landfill site.

Public Transit & Transportation• Transit fares - vary by zone & time of use.• May be efficient to subsidize public transit from

road charges • Municipalities should be permitted to:

- tax parking lots- have variable vehicle registration fees- issue differential drivers’ licence fees- impose a municipal fuel tax - impose congestion/toll charges

Infrastructure ChargesDevelopment Charges:• To cover growth related costs • Variable rates should be used when

costs differ across neighbourhoods.

Infrastructure Charges (cont.d)

Tax Incremental Financing Districts:• Used for ‘brownfield’ remediation & city center

revitalization and infilling.• Stimulates private investment in neglected urban

areas.• Divides local tax revenue into two categories – i)

pre-assessed development and ii) increased assessed value.

• Assists in discouraging urban sprawl.

What Is Achieved from Improved Pricing and Taxation?

• Improved resource allocation• More environmentally friendly • Improved fiscal sustainability• Better accountability & transparency• Fair in its impact on users

Key Challenges?Must overcome attitudes re:• the notion that user fees are regressive;• a reluctance to change current accounting

practices;• an expectation that senior governments should

provide grant funding to fund local services;• the importance of proper pricing polices for

efficiency, accountability, transparency and fairness in funding local services.